New Rent Ordinance Section Regulates Tenant Buyout Agreements: Penalties if Landlords Ignore

Jasna Veledar, Hooshmand Law Group

When landlords are faced with a tenant to whom they no longer wish to rent, some do not want to proceed with a no-fault eviction. These landlords often opt for tenant buyout agreement, wherein the landlords offer cash buyouts to tenants in exchange for the tenants vacating their rental units. These very common buyouts are advantageous to landlords because, even if a landlord spends tens of thousands of dollars, the landlord can recoup that cost by re-renting the unit at market rates, or even selling the unit. However, the buyout amounts vary wildly and at times are even below minimum relocation benefits, which are required to tenants for all no-fault evictions. A new section in the San Francisco Rent Ordinance will likely change that dynamic as it seeks to regulate tenant buyout agreements, with harsh penalties if landlords choose to disobey.

Tenant buyouts were previously unregulated in San Francisco, and landlords could use them to circumvent many of the restrictions that apply when a landlord executes a no-fault eviction. In some cases, landlords would employ high-pressure intimidation tactics to induce tenants to sign the agreements. Further, some landlords would threaten tenants with eviction if they do not accept the terms of the buyout. Disabled, senior, and catastrophically ill tenants can be particularly vulnerable, and can face greater hurdles to secure new housing; an all too common occurrence.

On March 7, 2015, The San Francisco Rent Ordinance added a new section, Section 37.9E, which discusses the very common tenant buyout agreement. The ordinance specifies that the goal of Section 37.9E is to increase the fairness of buyout negotiations and agreements. It requires landlords to provide tenants with a statement of their rights and allows tenants to rescind a buyout agreement for up to 45 days after signing the agreement. This reduces the likelihood of landlords pressuring tenants into signing buyout agreements without allowing the tenants sufficient time to consult with a tenants’ rights specialist. The ordinance also has a secondary goal to help the City of San Francisco collect data about buyout agreements.

The new law requires that prior to commencing any buyout negotiations, the landlord must provide the tenant a disclosure stating that the tenant has a right not to enter into a Buyout Agreement or Buyout Negotiations; that the tenant may choose to consult with an attorney before entering into an Agreement or Negotiations; that the tenant may rescind the Buyout Agreement for up to 45 days after it is fully executed; and must include specific information regarding the Rent Board, tenants’ rights organizations, and information regarding legal implications of an Agreement, among other information.  If the parties are able to reach an agreement, the agreement must also contain the same specific information.

Section 37.9E also specifies that the landlord must notify the Rent Board prior to commencing negotiations and has to file a copy of any Buyout agreement after execution. This will aid the City in collecting accurate and searchable information regarding the frequency of Buyout Negotiations and Agreements, and the results thereof.

If a landlord does not comply with the provisions of Section 37.9E, tenants are likely to bring a civil action. If the tenant wins the civil action, the landlord will be liable for the tenant’s damages, penalties, and attorney’s fees. This important portion of the ordinance will allow tenants to collect from landlords who may otherwise attempt to take advantage of tenants’ lack of knowledge about the law, or who try to intimidate or harass tenants to leave their unit. Based on how the rental market works in San Francisco, many of these civil suits are likely in the near term – all that is needed is tenant education.

A-(191)About the author:

Jasna Veledar is an associate at the Hooshmand Law Group, where she focuses her practice on landlord-tenant litigation and  business litigation matters.